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To perprevent a reduction of the capital below the minimum, it is provided in Section 10 that "no would in reduction shall be made to a less amount than is required in Section 1 for capital." mit this bank to substantially re-organize by increasing its capital, without increasing its capital stock to at least the minimum amount required for the city of The bank is now a corporation of the city is different my judgment, do violence to the intent of the legislature, as expressed in Sections 1 and 10 of the Banking Law, to which I have referred. of The law relating to the amount of capital stock in While I do not think the bank could be deprived of its right to continue during the period of its corporate existence, with a capital of twenty thousand dollars, by the annexation. I am constrained to hold that in taking advantage of the statute relative to the increase of capital stock, it must be governed by the provision of the statute applicable to the city of.
and must. therefore, if it increases its capital at all, increase it to at least the minimum amount required for cities having a population of over one hundred and ten thousand inhabitants, as prescribed by Section 1 of the Banking Law.
Very truly yours,
CONSTITUENT CORPORATIONS ENTITLED TO TWENTY PER CENT LOAN LIMIT.
Jan. 20, 1910.
Hon. Henry M. Zimmermann, Commissioner of Banking. Capitol. Lansing: Dear Sir-We are in receipt of your letter of the 14th instant in which you ask: "In this State, where a corporation is in operation and control of other corporations by having acquired a majority of the stock of such corporations what would be the limitation of credit lines which might be extended these corporations, both parent and subsidiary, by our State banks, under the Banking Law, exclusive of real estate or other collateral loans authorized by statute?"
Section 6141, C. L. 1897, as amended, being Section 52 of the Banking Law, provides as follows:
"The total liabilities to any bank of any person or of any company, corporation or firm for moneys advanced, including in the liabilities of the company or firm. the liabilities of the several members thereof, except special partners, shall at no time exceed one-tenth part of the amount of the capital and surplus of such bank, but the discount of bills of exchange drawn in good faith against actually existing values and the discount of commercial or business paper actually owned by the person negotiating the same shall not be considered Provided, however, That by a two-thirds vote of directors. as money borrowed: the liabilities to any bank of any person or company or corporation or firm may be increased to a sum not exceeding one-fifth of the capital and surplus of bank.
It will be noted that in the case of a company or firm the line of credit includes the liaCorporations are recogbilities of the company or firm and the several members thereof, except special partners, while no such restriction appears in the case of the corporation. nized by law as distinct legal entities regardless of the ownership of the stock. While we appreciate the fact that the effect of extending a 20 per cent. line of credit to each corporation might in some cases be equivalent in its effect to extending a 40 per cent. line of credit to one corporation, yet we are satisfied that the statute does not authorize interference by the banking Commissioner when the 20 per cent. line to each corporation is not exceeded. The situation is one that might properly be brought to the attention of the legislature.
Very Respectfully yours,
DIRECTORS' NOTES, IN LIEU OF ASSESSMENT, NOT PERMISSIBLE.
March 16, 1910.
Hon. Henry M. Zimmermann. Commissioner of the Banking Department, Lansing, Michigan: Dear Sir-I am in receipt of your communication of the 14th ultimo, requesting my opinion on the following proposition:
"If in case of the impairment of the capital of one of our State banks, in lieu of an assessment, a promissory note were given by the directors to the bank, pledging their personal responsibility to its payment. but with the exception that the stockholders will authorize its retirement from the earnings of the bank, could the makers of the note in case of the earnings of the bank failing to satisfy it avoid payment on the ground of no consideration?"
Replying thereto would say that section 6135 of the Compiled Laws, being section 46 of the act providing for the incorporation of banks in this State, in part, reads as follows: "The stockholders of every bank shall be individually liable, equally and ratably, and not one for another, for the benefit of the depositors in said bank to the amount of their stock at the par value thereof, in addition to the said stock.'
As a general proposition the directors of a bank organized under the General Banking Laws of this State are not liable where the capital has been impaired except as stockholders and under the provision above quoted this liability of the stockholders is "equally and For the purpose of avoiding liquidation under circumratably, and not one for another." stances such as you have outlined, the Commissioner of the Banking Department is clothed with certain discretionary powers to approve of such action on the part of the directors or stockholders as will make good such impairment and fully protect the depositors and creditors of the bank, but such impairment cannot be made good under the law by any transaction in the nature of a loan, as such a transaction would increase the liabilities of In other words, a director or stockthe bank to an amount equal to the sum received. holder may make good the impairment of the capital of a State bank in lieu of an assessment or for the purpose of avoiding liquidation, but there can be no contingent liability No action should be approved by the Commissioner of the therefor on the part of the bank.
Banking Department which would leave uncertain the capital of a bank in this particular. It is my opinion that the course suggested in your communication is not in harmony with the spirit and intent of the General Banking Law of this State, and particularly those provisions designed for the protection of depositors and creditors thereof. Very Respectfully yours,
(Signed) JNO. E. BIRD,
REAL ESTATE MORTGAGES NOT TO BE DEPOSITED WITH COLLATERAL DEPOSIT COMPANIES.
(16) October 12, 1910. Hon. Henry M. Zimmermann, Commissioner of the Banking Department, Capitol, Lansing: Dear Sir-We have given careful consideration to your letter of September 22d, in which you submit the inquiry as to whether real estate mortgages may be deposited with collateral deposit companies organized under the provisions of Act 240, Public Acts of 1907, and participation notes therein thereby become lawful investments for savings banks. A conference with the representatives of the institutions affected by the question above stated has developed additional questions, namely: If collateral deposit companies may not be the depositories for such mortgages, may domestic trust company be such depository; also may a foreign trust company or a domestic corporation, partnership or individual not subject to supervision of the Banking Department be such depository?
The statutory provisions involved in the questions above submitted are section 9 of Act 240, Public Acts of 1907, which reads as follows:
"Any corporation organized under this act shall have power to conduct a safety deposit business for the safe keeping of any personal property, and provide proper vaults and premises for the same; and shall also have power to receive or deposit, in trust, any personal property deposited with it by individuals, partnerships or corporations as collateral security for the payment of bonds, or other obligations issued by such individuals, partnerships or corporations, and to enter into and execute any instruments in writing necessary and proper to carry such trusts into effect."
Also subdivision 1 of Section 27 of the Banking Law which authorizes State banks to loan and invest savings deposits as follows:
"Upon notes or bonds secured by mortgage lien upon unincumbered real estate worth at least double the amount loaned; the remainder of such deposits may be invested in notes, bills, or evidences of debt the payment of which is secured by deposit with the bank of collateral security consisting of personal property or securities of known marketable value worth ten per cent more than the amount so loaned and interest for the time of the loan; or may be invested in notes, bills or other evidences of debt the payment of which is secured by such property or securities deposited in a collateral deposit company organized under the laws of this State."
Also the proviso of Section 52 of the Banking Law, which is as follows:
"Provided, however, That the foregoing limitations shall not apply to loans on real estate or other collateral securities authorized by this act and deposited with the bank or a safety and collateral deposit company organized under the laws of this State."
It is apparent that the proviso to Section 52 can furnish no assistance in determining the scope of the provisions of Subdivision 1 of Section 27 by reason of the general rule of statutory construction that a proviso does not enlarge the scope of the enacting section.
Sutherland's Statutory Construction, Sec. 352.
It is also apparent that "notes or bonds secured by mortgage lien, etc.." are not included among the securities which are authorized to be deposited in a collateral deposit company under the terms of said Subdivision 1 of Section 27 above quoted unless it can be said that such "notes or bonds secured by mortgage lien," are also included in "notes, bills or other evidences of debt the payment of which is secured by deposit with the bank of collateral security consisting of personal property or securities of known marketable value, etc." We are of the opinion that they are not so included. It is our view that the second clause of Subdivision 1, being that last above quoted, refers to notes, bills or evidences of debt which are secured by the deposit of personal chattels or securities such as promissory notes, bonds or other evidences of debt the title of which passes by the mere act of delivery. This would. of course, exclude real estate mortgages. We therefore hold that real estate mortgages may not be deposited with collateral deposit companies organized under the provisions of Act 240, Public Acts of 1907, and participations therein sold to savings banks as investments. The first clause of subdivision 1 of Section 27 of the Banking Law authorizes banks to loan savings deposits "upon notes or bonds secured by mortgage lien upon unincumbered real estate worth at least double the amount loaned." There is nothing in the Banking Law directly requiring real estate mortgages to be taken in the name of the bank when such loans are made. We are constrained, however, to hold that the law contemplates that the bank shall hold the title to such securities. It is essential that the Banking Department in making an examination of the affairs of the bank have an opportunity to examine the mortgages upon which such notes or bonds are predicated in order that the department may know the nature of the instrument, the description of the property and such other facts as will enable it to determine whether the loan is proper under the provisions of the statute.
Where, however, such real estate mortgage is placed in a trust company organized under the Michigan laws and over which the banking Commissioner has adequate supervision, we think the Commissioner would be acting within the spirit of the law if he permitted the mortgage to be taken in the name of such trust company and deposited with it allowing the banks to loan upon participating notes in such mortgage. We do not, however, believe that a bank would be authorized to invest in participating notes secured by a mortgage held by a foreign trust company or by a domestic corporation other than a trust company, a partnership or individual for the reason that the Banking Commissioner would have no authority under the law to examine the mortgage in such cases and thus determine the
We are further of the opinion that Section 9 of Act 240, Public Acts of 1907, does not authorize a collateral deposit company to be the owner or trustee of a real estate mortgage. but limits its authority to that of acting as trustee of personal property and collateral such as would pass by manual delivery. Very respectfully yours,
(Signed) FRANZ C. KUHN. Attorney General.
PRIVATE BANKS NOT DEPOSITORIES FOR PUBLIC FUNDS.
December 7, 1910.
Hon. Henry M Zimmerman, Commissioner of Banking, Capitol, Lansing:
Dear Sir-In response to your request for an opinion upon the question of whether or not private banks, so-called, may be designated as depositories of county funds, under the provisions of Act 99, Public Acts of 1909, I desire to say that the act in this title and provisions refers to the designation of "a bank or banks" as depositories without specifying whether private or incorporated banks were intended.
I am of the opinion that the statute should not be construed to include private banks. Generally when_reference is made to a bank this means an incorporated bank and not a private bank. For example, when a note is made payable at any bank in a city, this is held to mean an institution incorporated for banking purposes and does not include a private bank.
Way v. Butterworth, 106 Mass. 75;
The legislature has passed a law providing for the incorporation and organization of banks and making them subject to the State supervision. Under that law, as under the federal law providing for the organization of national banks, the stockholders are liable in double the amount of the stock held by them. It seems to me that when reference is made in the statute to a bank, it means an incorporated bank organized under the State or national banking laws. A private banker, so-called, conducts his business under Chapter 133 of the Compiled Laws of 1897, the same being an act relative to brokers and exchange dealers. The law prohibits the private banker from advertising or putting up any sign tending to convey the impression that the place of business is an organized bank. If he advertises, he must use his individual name and may add thereto "bank," "banking office" or "exchange office." I do not think the place of business of one conducting a private bank is a bank within the meaning of the Act 99. Public Acts of 1909. A somewhat similar question was before the court in the case of the City of DuQuoin v. Kelly, 176, Ill. 218. An ordinance was passed by the city requiring the treasurer to keep the city funds in a regularly organized bank. It was held that the ordinance contemplated a bank organized under the State or national banking law and not a private bank owned by an individual. The court said:
"We are of the opinion that the term 'regularly organized bank' in the City and Village act means a bank organized under either the State law or the act of Congress, and that it was not intended by the legislature that a city officer who has given bond for the safekeeping of the funds in his hands should be required to deposit them in a private bank. There would seem to be no more reason for that than there would be for turning the funds over to a private individual. It is true, provision is made that such banker or bankers shall give bond; but we do not think this alters the case.'
I believe as was said by the court in this case, that there is no more authority for depositing the public funds in a private bank than there is for loaning them out to an individual, and the fact that security is required to be given makes no difference.
I am of the opinion, therefore, that the Board of Supervisors cannot lawfully designate a private bank as a depository of county funds, under the provisions of Act 99, Public Acts of 1909.
Very respectfully yours,
(Signed) FRANZ C. KUHN,
BANK STOCK MAY BE CANCELED AND NEW CERTIFICATES ISSUED.
March 10, 1911.
Hon. Edward II Doyle, Commissioner of the Banking Department, Capitol, Lansing, Michigan: Dear Sir-In your letter of February 25th, you state that the Bank of Michigan, recently sought to enforce its rights, under Section 6090 of the Compiled Laws of 1897, by a sale of shares of its own bank stock, which is at the present time held by Chicago parties as collateral to a loan made by them. This sale was made by the sheriff. by order of the court and stock bid in by the.. Bank. The Chicago parties refused to surrender the stock in question, and you inquire by what authority, under the statute, can the officers of the bank cancel the old outstanding issue and a new issue of stock be made, which, when sold, will reimburse the bank for the amount which they have already applied on the stockholders' obligation, as noted above.
Since receiving this communication we have received a copy of the proceedings under which the sheriff's sale, above referred to was made. It appears that the sale was not made pursuant to the authority conferred by the General Banking Law. Section 6090, to which you refer in your letter, but was made pursuant to an agreement confessing judg ment, which seems to be in compliance with Section 10299 of the Compiled Laws of 1897. The sale of stock was then made pursuant to authority conferred by Sections 10335 to 10338 of the Compiled Laws of 1897. Section 10338 provides:
"And the purchaser (at such execution sale) shall thereupon be entitled to a certificate or certificates of the shares bought by him, upon paying the fees therefor, and for recording
It is clear from the above statutory provision that the bank has authority to issue to itself new certificates to take the place of those sold upon the execution and pursuant to the authority conferred upon it by the General Banking Law would have authority to sell these shares so issued within the statutory period. Very respectfully yours, (Signed) FRANZ C. KUHN, Attorney General.
CORPORATIONS TO INVEST IN OR POSSESS BANK STOCK ONLY ON CERTAIN CONDITIONS.
May 24, 1911.
Hon. Edward H. Doyle, Commissioner of the Banking Department, Capitol, Lansing: Dear Sir-You state in your letter of April 20th that the banking department has ruled that the several sections of the banking law relating to stockholders require the individual ownership of capital stock of state banks; that in recent reports to the department it appears that in numerous instances capital stock of state banks is owned by firms, copartnerships, corporations and two or more individuals jointly. You inquire whether such a holding is legal.
In reply thereto will say that it is our view that two or more individuals have the authority to hold bank stock jointly, also that copartnerships have the same right.
The question of the right of a corporation to take and hold stock in a bank is dependent upon the statute providing for the organization of such corporation and the manner in which the stock is acquired. The rule is thus stated in Clark and Marshall on Corporations, page 523:
"A corporation has no power to subscribe for or purchase shares of stock in another corporation unless such power is expressly granted or unless the nature of the corporation and circumstances under which the stock is acquired are such as to render the transaction a necessary or reasonable means of carrying out the object for which it was created or of accomplishing some purpose which is authorized by its charter."
Without making an extensive examination into the acts providing for the creation of the different classes of corporations doing business in this state, will say that in the great majority of cases the act providing for the organization of such corporations does not authorize the purchasing and holding of shares in other corporations, and under the general rule above stated such corporations would have no authority to purchase and hold shares in banks unless such shares were taken in a manner that could be said to be reasonably necessary to the carrying out of the objects for which the corporation was created. No instance occurs to us where it could be said to be necessary for a corporation to purchase and hold shares of stock in a state bank except as such stock might be taken in payment of debts in good faith owing to the corporation.
Section 50 of the Compiled Laws relative to the construction of statutes provides :
"The word person' may extend and be applied to bodies politic and corporate as well as to individuals."
Reference must be had to the provisions of the act of incorporation of the corporation holding the bank stock and a determination must be made of the purpose for which such stock was purchased in order to settle the question of the right of the corporation to take and hold such stock.
Very respectfully yours,
(Signed) FRANZ C. KUHN, Attorney General,
BANK ABSORBING ANOTHER CANNOT CONTINUE TO HOLD CERTAIN UNAUTHORIZED
May 24, 1911.
Hon. Edward II. Doyle, Commissioner of the Banking Department, Capitol, Lansing, Michigan: Dear Sir-We are in receipt of your letter of May 20th, in which you state as follows: A state bank recently purchased the assets of another state bank, among which were certain bonds coming within the provisions of subdivisions (e), (f) and (g), or section 27 of the Banking Law, which had not been approved by the Securities Commission. These assets had been permitted to be held by the selling bank by reason of the fact that they were investments prior to the taking effect of the amendments to Section 27 made by Act 262 of the Public Acts of 1905. The purchasing bank contends that because the department permitted them to be held by the selling bank, it should also authorize the purchasing bank to hold the same until maturity. You submit the inquiry as to whether the purchasing bank should be allowed to carry such securities as legal savings investments.
In reply thereto would say that it is our opinion that the purchasing bank should be held to the plain requirements of Section 27, and that the fact that the securities mentioned were purchased from another savings bank would not justify you in permitting the bank purchasing same to carry them as legal savings investments. In this connection it may be proper to say that Section 27 requires fifteen per cent of the deposits to be kept on hand as a reserve, in cash or reserve banks, three-fifths of the remainder of the deposits are required to be invested in securities mentioned in subdivisions (a) to (i) inclusive of Section 27. You will note that subdivision (i) provides that:
"A portion of said remainder not exceeding the capital and additional stockholders' liability may be invested in negotiable paper approved by the board of directors."
This would authorize a savings bank to carry an amount of negotiable bonds or other negotiable paper up to the amount named in the above quoted provision, even though such bonds or other negotiable paper had not received the approval of the Securities Commission. Very respectfully yours,
(Signed) FRANZ C. KUHN,
JOINT TRUSTEESHIP IN CERTAIN BOND ISSUES PERMISSABLE
Hon. E. H. Doyle, Commissioner of Banking, Capitol, Lansing:
June 29, 1911.
Dear Sir-Replying to your letter of June 15th, relative to the first mortgage six per cent bonds of the Oregon-Washington Timber Company, for which the Union Trust Company of Detroit, and the Mississippi Valley Trust Company of St. Louis, are co-trustees, will say that we think this mortgage comes within our ruling of October 15, 1910, to the effect that if the bonds possess the other requisite qualifications for investment for savings banks, you would be warranted in permitting savings banks to invest therein. Very respectfully yours,
(Signed) FRANZ C. KUHN,
ASSESSMENT ON STOCKHOLDERS NOT LIMITED TO ONE HUNDRED PER CENT.
October 14, 1911.
Hon. Edward H Doyle, Commissioner of the Banking Department, Capitol, Lansing, Michigan: Dear Sir-In your letter of September 30th you submit the following inquiries: "In case of the impairment of the capital stock of a state bank to an amount in excess of its total capital, has the board of directors the authority to order, upon the requisition of the Commissioner of the Banking Department, to make good such deficiency, an assessment upon the capital stock of such bank for an amount exceeding 100 percent of such stock?
After having paid an assessment of 100 per cent in accordance with the present Banking Law, in case of an impairment ascertained subsequently by the department, could a further assessment be levied by the directors, upon requisition of the Cominissioner, for the purpose of making good such deficiency?
Would the payment by stockholders of assessments such as above indicated, lessen their liability in case of the liquidation of insolvency of the bank?
The statutory provisions involved in these inquiries are Section 46 of the Banking Law, which provides as follows:
The stockholders of every bank shall be individually liable, equably and ratably, and not one for another, for the benefit of the depositors in said bank to the amount of their stock at the par value thereof, in addition to the said stock; but persons holding stock as executors, administrators, guardians, or trustees, and persons holding stock as collateral security, shall not be personally liable as stockholders, but the assets and funds in their hands constituting the trust shall be liable to the same extent as the testator, intestate, ward or persons interested in such trust funds would be, if living or competent to act, and the person pledging such stock shall be deemed the stockholder and liable under this section. Such liability may be enforced in a suit at law or in equity by any such bank in process of liquidation, or by any receiver, or other officer succeeding to the legal rights of said bank."
Also Section 42 of Act 1 of the Public Acts of 1911, which provides, in part, as follows: "Whenever it shall appear from the report of any bank, or the Commissioner shall have reason to believe that the capital of any bank is impaired or reduced below the amount required by law, it shall be the duty of the Commissioner and he shall have the power to examine the said bank and ascertain the facts, and in case he finds such impairment or reduction of capital, he shall require such bank to make good the deficiency so appearing within sixty days after the date of such requisition. The directors of every such bank upon which such requisition shall have been made shall levy an assessment upon the stock thereof to repair such deficiency, and shall cause notice of such requisition to be given to each stockholder of the bank and of the amount of the assessment which he must pay for the purpose of making good such deficiency, by a written or printed notice mailed to such stockholder at his last known place of residence or served personally upon him."
These two sections are plainly intended to subserve entirely different purposes. Section 46 refers only to cases where the bank is in process of liquidation and limits the amount of the assessment which may be made upon the stockholders for that purpose to 100 per cent. Section 42, above quoted, is for the purpose of preventing the bank from going into liquidation and maintaining it as a going concern. The language used is equivalent to saying to the stockholders, "The capital of your bank is impaired, you must make it good or it will be obliged to go into liquidation at the hands of a receiver."
It is our view that the two sections have no relation to each other and that under Section 42 of Act 1 of the Public Acts of 1911, the Commissioner has a right to order the bank to make good an impairment of any amount, whether less than or in excess of 100 per cent. I am also of the opinion that in case an assessment had been levied pursuant to Section 42 to make good an impairment, a further assessment or assessments could be made to meet future contingencies. I am further of the opinion that payment by stockholders of assessments under Section 42 would in no way lessen their liability to an assessment by the receiver in case of the liquidation or insolvency of the bank. Very respectfully yours,
(Signed) FRANZ C. KUHN, Attorney General.
TRUST COMPANIES IN ORDER TO QUALIFY AS TRUSTEE IN OTHER STATES MAY DEPOSIT
October 28, 1911.
Hon. Edward H. Doyle, Commissioner of Banking Department, Lansing, Michigan:
Dear Sir-We have had under consideration your letter of October 13th, in which you submit the following inquiries:
"Can a corporation organized under Act No. 108 of the Public Acts of 1889, as amended, acting as trustee under an issue of bonds covering property located in part in Michigan, and in part in one or more other states, deposit its bonds or mortgages with a state department